ABSTRACT

This research study provides empirical evidence on the determinants of tax compliance of SMEs. Using the survey research design, questionnaires were distributed to 100 firms cutting several sectors of the economy. Responses from 92 respondents from the management cadre of the firms were analysed with simple percentage analysis, correlation and multiple regression analysis using the Statistical Package for the Social Sciences 20.0. Preliminary analysis with simple percentage analysis confirms that tax compliance by SMEs is low. Correlation analysis show tax compliance of SMEs have significant positive relationship with financial viability and profitability of SMEs, financial literacy and exposure of SMEs owners/managers, perceived fairness of tax system, and government accountability, but an insignificant negative relationship with probability of detection and degree of punishment. Also, the correlation analysis has the most significant positive relationship with financial literacy and exposure of SMEs owners/managers. Multiple regression analysis show that financial viability and profitability of SMEs, financial literacy and exposure of SMEs owners/managers, perceived fairness of tax system, and government accountability have significant positive impacts on tax compliance of SMEs. Probability of detection and degree of punishment was shown to have a positive but insignificant impact on tax compliance of SMEs. Also, the multiple regression analysis show that financial viability and profitability of SMEs has the most significant positive impact on tax compliance of SMEs. Thus, it was recommended that loan accessibility should be increased for SMEs as well as bookkeeping made mandatory for SMEs, so as to improve the financial viability and performance of SMEs. Also, financial literacy programs targeted at SMEs should be developed.